
MARKET INSANITY MAY
26, 2020 by Mike Lathigee:
TAKE PROFITS AND BE CAUTIOUS!
In the last 24 hours American biotech firm Novavax said it had started the
first human study of its experimental coronavirus vaccine, with initial results
on safety and immune responses expected in July. Vaccine development is a long,
complex process, often lasting 10 to 15 years. The market continues to
behave as though a vaccine is a foregone conclusion and that good news is
imminent – as today the DOW (as I write this @ 10:22AM) is up over 600 points.
Year over year Novavax is now up over 700%.
Last week Moderna announced all 45 patients in its vaccine trial had developed
antibodies against the coronavirus and the DOW surged 900 plus
points. The next day insiders sold over $30 million dollars of
their shares (with observers skeptical of the Moderna results) and there is
currently a surge in lawsuits against the company. Lots of lawsuits can
be paid for when the market cap of your company has increased by billions of
dollars in a short period of time!!! It is interesting to note that
Moderna is now below the share price before it made its “big” announcement and
almost the entire executive team is dumping stock – collecting tens of millions
every day.
Both stocks have now risen several hundred percentage points in just a few
months creating billions in additional value. I wonder if we will see
continued situations of companies rushing through Phase 1 Trials to show any
positive results that will see the value of their stock increase by triple
digits. Yes, there are many protocols and regulations that must be
followed, but as we have seen with Moderna, it was more about getting the news
out and worry about complete accuracy later.
There are many professionals with high moral standards in biotech, but the
market temptation is big – to skirt the limits, make quick announcement – and
see massive gains in wealth. I think we are going to see this
situation happen again and again as so many companies are working on a
vaccine.
It seems the market feeds on any good news and ignores the trade war with China,
the high unemployment rates, the surge in bankruptcies, declining consumer
spending, rising foreclosures, possible food supply disruptions
etc. This morning I spoke to a landlord, with more than 200
commercial tenants, and less than 40% of them paid rent in May. Brazil
coronavirus deaths have skyrocketed and is likely to surpass the US. It
goes on and on and etc. etc. etc. The most appropriate song that I can think of
right now is “We didn’t Start the Fire” by Billy Joel. Watch the video
and listen to the words!
Companies that have no customers like theme parks and hotels are still hanging
onto their high valuations and airlines bleeding cash are being propped
up. I am expecting a day in the future to hear “kaboom”
and the market will wake up.
A day like this makes little sense – with the Nasdaq now trading at all-time
highs. Yes, the Fed is buying everything in sight to support the
market and is just one short of directly buying stocks. Such a
situation is bad for gold, but I believe with Wall Street so ‘out of whack’ –
we will see a day of reckoning.
There is not a logical astute investor I know that believes there is value in
investing in 25x next year’s earnings. Warren Buffett is totally on the
sidelines since March in a much higher cash position and currently has “egg on
his face” as investors start to pressure him to jump in because he is missing
out. The writing is on the wall when this happens. If you are in
the market, take your profits. Maintain a position in gold,
silver, a large position in cash and wait for the opportunities that will
arise. Believe me there will be great opportunities!!!
I believe we are going to see the market come down hard soon. We
are seeing artificial stock market valuations. Think of the devastation
when we see the likely resurgence of the virus in the late Fall and
Winter. Risk is largely being ignored and all these threats to the
economy are unlikely to be overcome. We will see the market spiral down but the
only (repeated) caveat is if the Fed continues to feed the market with
liquidity – this would keep the party going, at least for the short
term.
It appears the old capitalistic metrics where the markets and the economy are
in close correlation no longer exist. The market is now driven
by algo traders – which is 70% of all trading. The market does not
care about my opinion and with these new governing metrics my old school
guidance of fundamentals may be viewed as archaic as the current market is only
governed by money flows and technical analysis. So, I believe
in what I have written but the “new” traders will tell me that my analysis is
outdated. Time will tell!!!
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